Student Loans and Government-Run Health Care
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Today, Bloomberg reports, Democratic Rep. George Miller is introducing a White House-backed bill that would end the subsidies to private student loan providers and have all lending done directly by the government. The legislation is worth considering in light of President Obama’s insistence that the creation of a new government-run health care plan will not put America on the pathway to a single-payer health care system.

As the article explains:

Obama and Miller seek to end a 16-year-old arrangement under which the government runs competing college loan programs. The 43-year-old Federal Family Education Loan Program subsidizes and guarantees loans made by private lenders. A second program, created in 1993, enables the Education Department to make loans directly to students.

Miller’s plan, like Obama’s proposal, would eliminate the loan-guarantee program and switch all new federal loans to the direct-lending program, according to a committee fact sheet. Both plans would let companies compete for loan-servicing tasks such as processing payments and collecting on defaulted loans.

So in other words, the Clinton administration created a new fully government-run lender, and 16 years later, another Democratic president wants to do away with private companies issuing federal student loans and have that government-run lender take over the entire market.

To be sure, there are significant differences between the health care and student loan markets. Private health insurers work within a government regulatory framework, but they have independent revenue streams and were founded as private enterprises. Sallie Mae, the largest student loan provider, was founded in 1972 as a government-sponsored entity like Fannie Mae and Freddie Mac. It was only in 2004 that it theoretically severed ties with the government, but in practice, 74 percent of the loans it issues are still federally guaranteed. It’s hard to shed many tears for Sallie Mae and other providers that are able to make profits by earning interest on federally-backed loans, while all of the risk is ultimately absorbed by the American taxpayers. So, there is a certain logic to saying, if the federal government is backing the loans anyway, they may as well make them directly rather than prop up an intermediary.

However, what this does demonstrate is how easy it would be for the Democrats’ proposed changes to the health care system to be turned into a single-payer system down the road. Under the proposals working their way through Congress, the federal government would provide subsidies for individuals to purchase health insurance on a government-run exchange, choosing a government-run plan or among private plans. Right now, Democrats are trying to argue that the exchange would be a level playing field, and the government plan wouldn’t have any advantage over private plans in terms of accessing government subsidies. It would all depend on how individuals choose to use their subsidies, they say. But, even if it’s a decade or two down the road, it’s easy to see how lawmakers would decide that the insurance market is too fragmented, that it doesn’t make sense for government subsidies to be distributed among so many different insurers when the government can just provide coverage directly. This is just another one of the many ways in which the Democratic health care legislation could put us on the pathway to single-payer.

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